Key takeaways
- An authorized delegate is an agent, such as a retail store, that collects money from customers on a money transmitter's behalf.
- Money owed by delegates to the transmitter can count as a permissible investment, but only if it is less than seven days old.
- Receivables from any single delegate count only up to 10% of the transmitter's total permissible investments.
- Slow settlement by a large delegate is one of the most common causes of permissible investment shortfalls.
What authorized delegates are
Many money transmitters reach customers through agents rather than their own branches. A supermarket, pharmacy or convenience store accepts cash from a customer who wants to send money, and passes the transaction to the transmitter. In state law these agents are called authorized delegates. The delegate collects the money; the transmitter owes the recipient. Until the delegate pays the transmitter, the transmitter has a receivable from the delegate.
Under the MTMA, money a delegate collects is held for the transmitter and must be remitted on the schedule in their contract. The transmitter remains responsible to its customers whether or not the delegate pays on time.
Delegate networks can be very large. A transmitter with thousands of agent locations may receive settlements daily from some, weekly from others, and on varied terms negotiated with each retail chain. Each of those receivables must be tracked individually for the permissible investment test, because the ageing and concentration rules apply per delegate, not across the network as a whole.
How delegate receivables count
Because the transmitter owes customers from the moment the delegate takes their money, it must hold permissible investments against those obligations. The MTMA allows receivables from delegates to count, within limits. A receivable counts only if it arose in the ordinary course of business, is less than seven days old and is not past due or doubtful. Receivables from any single delegate count only up to 10% of the transmitter's total permissible investments.
The ageing test means slow settlement directly reduces the transmitter's eligible assets. A receivable that reaches seven days old stops counting entirely, even if the delegate will certainly pay.
Worked example
A transmitter has total permissible investments of $48.0 million before delegate receivables. It is owed $7.2 million by its largest delegate, a national retail chain, of which $1.1 million is more than seven days old because of a disputed settlement. The aged $1.1 million does not count. The remaining $6.1 million is tested against the 10% limit.
Solving for the limit, eligible permissible investments are $53.33 million, of which $5.33 million can come from the chain. The other $0.77 million of current receivables also does not count. In total, $1.87 million owed by one delegate gives the transmitter no credit, and its eligible assets are $1.87 million lower than a simple total would suggest.
| Line | Amount (USD millions) |
|---|---|
| Permissible investments before delegate receivables | 48.00 |
| Receivable from largest delegate (gross) | 7.20 |
| Less: aged over seven days | (1.10) |
| Current receivable | 6.10 |
| Less: above 10% single-delegate limit | (0.77) |
| Eligible receivable | 5.33 |
| Eligible permissible investments | 53.33 |
Controls
Reconcile delegate settlements daily and age every receivable. Escalate disputes before they reach seven days. Monitor each delegate's share of total permissible investments against the 10% limit and agree faster settlement terms with delegates whose share is growing. Report delegate receivables in the MSB call report from the same daily records.
Safeheld reconciles delegate settlements, ages receivables and applies the single-delegate limit to the daily permissible investment position. See Safeheld reconciliation.
Frequently asked questions
What is an authorized delegate?
An agent, such as a retail store, that collects money from customers on behalf of a licensed money transmitter.
Do delegate receivables count as permissible investments?
Yes, if they are less than seven days old and not past due or doubtful, within a 10% limit per delegate.
What happens when a receivable is more than seven days old?
It no longer counts as a permissible investment.
How can a transmitter reduce delegate risk?
Reconcile and age settlements daily, escalate disputes early and agree faster settlement with large delegates.
References
- Massachusetts General Laws c.169B §9: net worth, security and permissible investments
- Iowa Code §533C.804: types of permissible investments (Uniform Money Transmission Modernization Act)
- Wisconsin Department of Financial Institutions, Money Transmission Modernization Act
- NMLS, MSB Call Report Section III: Permissible Investments Report
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.